Bill Galvin Doesn’t Want You to Buy Bitcoin

The Massachusetts Secretary of State is warning of a possible impending "disaster."

at the Statehouse in Boston, Wednesday, Jan. 5, 2011. (AP Photo/Charles Krupa)

Attention everyone who is emptying out their savings or mortgaging their house to buy piles of the magical cyber money Bitcoin: Massachusetts Secretary of State William Galvin wants to save you from yourself.

Bitcoin, the cryptocurrency no one really understands but which has seen a shocking spike in value this year, looks an awful lot like the bubbles of yore, he says, so Bay State investors would be wise to stay away, or at least be very cautious.

“Bitcoin is just the latest in a history of speculative bubbles that most often burst, leaving the average investors with a worthless product,” Galvin said in a statement this week. “Going back to the 1600s with tulip mania to the present Bitcoin craze, chasing the next best thing will, more often than not, end in disaster for the average investor.”

Bitcoin and its brethren, like Litecoin, function using little chunks of data that have to be “mined” using energy-sucking processors, and which can be traded online or used to buy goods and services from people who accept them as currency (the MIT COOP began accepting them in 2014). There are more than a dozen Bitcoin ATMs in Boston. The first one was installed at South Station in 2014.

The software that enables this mysterious alternative currency first emerged in 2009, but it’s gotten a lot more attention lately because the value of “bitcoins” has spiked spectacularly, from just a few dollars each to, at one point this week, more than $17,000 each. As of Thursday morning, a single bitcoin was worth about $16,500, according to CoinDesk. Someone who could have seen this coming even a few months ago would be very rich right about now. And a lot of people are trying to get in on the action. There are cryptocurrency smartphone apps out there that make buying and tracking them as simple as playing fantasy football.

But this is no game, and one need only look to history to see why, Galvin says. The “tulip mania” he name-checked in his warning to the Commonwealth refers to the 17th Century phenomenon that saw the Dutch invest unseemly sums in the flowers, which were trendy at the time, until the price of them suddenly plummeted and a lot of people lost a lot of money. It’s a cautionary tale often deployed by economists when they see speculation on an asset get hot, fast, and the current frenzy around Bitcoin has brought it up again..

Aside from overzealous investors, Galvin had some other concerns about the so-called cryptocurrencies. He notes that Bitcoin and its peers aren’t backed by the federal government, that online “wallets” containing them may be vulnerable to hacks, and that the Wild West world in which they operate leaves buyers vulnerable to “investment scams and other financial fraud.” Those who want to verify if a Bitcoin seller is legit can contact his office’s securities division at 1-800-269-5428.

Here’s what Galvin thinks you ought to consider about Bitcoin, according to his notice:

1. Bitcoin and other virtual currencies are not regular money, as they are not backed by the United States or any other government or central bank.

2. Carefully investigate the seller before making a purchase of Bitcoin. You may want to consider what recourse you would have, in case something goes wrong. Compare the fees and costs associated with Bitcoin purchases and ask about the terms for redeeming Bitcoin into regular money.

3. Virtual wallets used to store Bitcoin do not provide the same safeguards as deposits made at a traditional banking institution. Unrecoverable losses can occur when Bitcoin is stolen from these virtual wallets.

4. Bitcoin values fluctuate enormously and can do so in a very short period of time. Be prepared for radical value changes in your Bitcoin investment, including single day drops or increases in the thousands of dollars.

5. Bitcoin investing is generally considered to be speculation, since the value is not related to any economic or financial parameters. Never speculate with money that you cannot afford to lose.

6. Bitcoin and other virtual currencies are based on a public ledger called the “Blockchain,” which is still experimental and is subject to changes, errors, or criminal activity which could adversely affect your virtual wallet or erase your Bitcoin value.

7. The unregulated and ambiguous nature of Bitcoin provides a fertile ground for investment scams and other financial fraud, which can cause Bitcoin investors to lose their money.